The Congressional Budget Office (CBO) just released a new report, Approaches to Making Federal Highway Spending More Productive, which outlines problems with the way the federal government spends money on highways and suggests some potential fixes. The report argues that financial challenges have made it even more important that highway funding is spent in the most productive way possible, i.e., maintenance should be prioritized over expansion and spending should better correspond to highways’ use and economic value.

The two most pressing financial issues cited are that fuel tax revenues have not kept pace with federal spending—lawmakers have transferred $143 billion from other sources into the Highway Trust Fund since 2008—and steadily increasing construction costs have reduced the value of revenues collected.

In light of the declining buying power of revenues, the report shines a light on the fact that project spending does not correspond with a highway’s economic value or usage, and it suggests three changes to the Federal Highway Program that could increase the productivity of highway spending:

Charge drivers for their use of highways—increase tolling or implement mileage-based user fees (VMT fees) at the federal and/or state levels, and charge higher rates when roads are congested.

Allocate highway funding to states based on the costs and benefits of specific programs and projects.

Link highway funding to performance on key measures by providing additional funds to states meeting standards or penalizing those that do not.

Increased tolling or implementation of a VMT fee, with rates that vary by route and/or time of day, could both raise revenues and ensure that highly valued freight or drivers on a tight schedule could move at higher speeds on less congested routes. FHWA estimates that widespread congestion pricing would reduce the total capital investment required to meet demand by 30 percent. An added benefit would be that such a system would provide information about how much drivers value the use of roads, which could be used to prioritize future improvements.

Allocating highway spending on the basis of benefit-cost analysis (BCA), rather than on geography or providing fixed allocations to states, could help to channel highway spending toward projects and programs that will yield the greatest economic value. Under a scenario based on an FHWA analysis of 2010 highway projects, where funding is directed toward projects where the benefits exceed costs by the greatest percentages, the relative amounts spent on expansion and repairs would remain relatively steady, while the location of projects would change dramatically. Funding for urban areas would be increased by 43 percent for interstates and 22 percent for other federal-aid roads, and funding for rural areas would decline by 46 percent for interstates and 43 percent for other federal-aid roads. Alternately, funding could be directed toward existing programs, such as TIGER, that allocate funds based on projected benefits and costs. (For more information about how to calculate the economic benefits of transportation projects, see this SSTI report.)

Linking funding to performance measures such as traffic congestion or pavement condition could also improve the productivity of highway spending and might be easier than using pricing or BCA, since performance information can be readily obtained. One potential shortcoming, however, is that it could end up funding projects that fare poorly in BCA.